India: Karnataka iron ore auction sales volumes decline by 44% y-o-y in H1CY’24

Karnataka iron ore e-auction sales volumes downtrend in the first half (January-June) of calendar year 2024 (H1CY’24). Sales volumes declined by 44% y-o-y to 5.3 million tonnes (mnt) against 9.4 mnt in the same period in 2023, as per BigMint data. Out of the total volume of iron ore sold via auctions, nearly 3 mnt of fines, and around 2.4 mnt of lumps were sold during H1CY’24.

Furthermore, the total e-auction sales volume of iron ore was recorded at 0.8 mnt in June, 2024, a significant drop of 39% m-o-m compared to the sales volume of around 1.3 mnt in the previous month. Out of the total volume of iron ore sold via auctions, 388,000 tonnes (t) of fines, and 409,000 t of lumps were sold during the month.

Reasons for downtrend in Karnataka iron ore e-auction sales volumes:

• Decline in offered volumes in auctions: There has been a noticeable decrease in iron ore sales volumes through e-auctions since the beginning of the year. This decline can be attributed to market players increasingly preferring direct sales over auctions.
• NMDC’s Long-Term Agreements (LTA): NMDC, a major player in the iron ore mining sector, has adopted a strategy of signing Long-Term Agreements (LTA) for iron ore sales from its Donimalai mines in Karnataka. These LTAs involve contracts with Karnataka-based players, where 80% of the iron ore will be sold directly under the agreement, and only 20% will be auctioned. This approach aims to stabilise sales volumes and provide price certainty through direct sales while still utilising auctions for price discovery.

Miners’ iron ore sales via auction outcomes:

According to BigMint’s records, major miners in the region have shifted to direct sales models such as LTAs, which has impacted overall trade volumes through e-auctions. This shift suggests a preference for stable and predictable sales over the potentially fluctuating prices of auction-based sales.

Company-wise table for H1CY’24 vs H1CY’23

Iron ore prices increase y-o-y: The yearly weighted average prices of iron ore lumps and fines rose y-o-y. Weighted average prices in auction sales of Fe 60% fines stood at INR 4,050/t in H1CY’24, a rise of around INR 1,250/t y-o-y against INR 2,800/t in H1CY’23. Meanwhile, weighted average prices of Fe 63% lump prices were at INR 4,900/t in H1CY’24, an increase of around INR 1,400/t y-o-y against INR 3,500/t in H1CY’23. Prices are exclusive of taxes.

Outlook:

The anticipated shift in Karnataka towards direct sales over auctions indicates a strategic move within the mining sector. Direct sales can offer several advantages, such as reducing dependency on auction dynamics and providing supply stability. However, the continued option of e-auctions shows that some miners still prefer the auction route.